BACKGROUND

The efforts of the Nicaraguan Contra organizations to unseat the
Sandinista Government in Nicaragua spanned much of the 1980s but had their roots
in earlier events. A 1911 treaty between the United States and Nicaragua gave
the United States the right to intervene in Nicaraguan affairs, and U.S. Marines
were dispatched to Nicaragua in 1912 to protect U.S. economic interests. The
two-decade military occupation that followed helped foster the development of a
guerrilla opposition, led by Augusto Cesar Sandino, that sought to rid Nicaragua
of U.S. influence. The U.S. Marines left Nicaragua in 1933, but opposition to
Nicaraguan National Guard Commander Anastasio Somoza Garcia, who had then
assumed power, continued thereafter.

In 1961, the Frente Sandinista de Liberacion Nacional (FSLN) was founded
in Havana when Carlos Fonseca's Nicaraguan Patriotic Youth organization merged
with Tomas Borge's Cuban-supported insurgent group. From its inception through
the early 1970s, the FSLN was a marginal group that failed to marshal popular
support or succeed in its low-level guerrilla war. The 1972 earthquake that
devastated the capital city of Managua, however, changed the nature of the
conflict. Support for the rebels increased because of the Somoza Government's
profiteering from international relief efforts. Thereafter, fighting between
FSLN elements and the National Guard steadily increased. The 1978 assassination
of Pedro Joaquin Chamorro, editor of the opposition newspaper La Prensa,
brought new protests that swept the country and swelled the ranks of the FSLN
with new recruits. Additionally, non-Marxist resistance groups began to join
with the FSLN, leading ultimately to the creation of a Broad Opposition Front.
The Front sought to draw people from all economic classes, ages and professions
into the anti-Somoza opposition.

In February 1979, the U.S. Department of State (DoS) announced that the
United States would suspend all new economic and military aid to Nicaragua
because of Somoza's unwillingness to accept a negotiated settlement. The
suspension of U.S. aid pulled the last support from under Somoza, and he fled
the country in July. After Somoza's departure, Sandinista forces moved into
Managua and assumed power. The United States quickly extended diplomatic
recognition and offered aid. Despite the American actions, the new Sandinista
Government turned increasingly against the United States and moved closer to
Cuba and the Soviet Bloc. The Cubans were particularly active in educational
programs that featured a strong pro-Marxist, anti-U.S. bias.

The leadership of the post-Somoza Government, known as the Government of
National Reconstruction (GRN), was initially a five-person directorate led by
Daniel Ortega. It was composed of two FSLN members, a leftist intellectual and
two moderate business representatives from the Broad Opposition Front. Before
the inaugural session of a new national assembly, known as the Council of State,
the FSLN unilaterally increased the total number of seats. This ensured FSLN
control of the assembly and led the moderate business members of the
directorate, Alfonso Robelo and Violetta Chamorro, Pedro's widow, to resign in
April 1980.

Despite promising free elections, free enterprise, an independent
judiciary, and an end to political oppression, the Sandinistas seized television
and radio stations, censored La Prensa, and established a Cuban-modeled
internal security apparatus. In 1980, the Sandinista Government announced that
it would not hold national elections until 1985. This convinced many
Nicaraguans that the prospects for a true democracy were growing dimmer under
FSLN dominance. In published statements, Sandinista officials expressed their
desire for better relations with the United States and insisted that they had no
intention of supporting insurgencies aimed at subverting their neighbors. Their
actions, however, began to raise additional doubts. Weapons and equipment sent
by Cuba through Nicaragua began making their way to rebels in El Salvador.

During the Carter Administration, the United States was in "competition"
with Cuba for the allegiance of the Nicaraguan Government and hoped that
friendly relations could be maintained. Although President Carter authorized
aid to the GRN, he also authorized support to the democratic elements in
Nicaragua in the fall of 1979 because of the direction of the Sandinista's
policies. In January 1981, Carter suspended financial aid to the GRN. The
incoming administration of President Reagan continued this policy. Concern
about the Sandinista's internal repression, their growing military force, their
ties to the Soviet Bloc, and their support for the Salvadoran insurgency led
Washington to consider ways to increase assistance to the regime's opponents.
These opponents came to be called the Contras.

Several groups of Contras began to emerge in the early 1980s. The
Democratic Revolutionary Alliance (ARDE) and the Sandino Revolutionary Front
(FRS) operated out of bases along Nicaragua's southern border with Costa Rica,
while the Nicaraguan Democratic Force (FDN) operated out of camps in southern
Honduras along Nicaragua's northern border. Initially, the FDN in the north was
primarily composed of former National Guardsmen, although its membership and
leadership diversified as the war progressed. ARDE and the FRS in the south
were composed primarily of former Sandinistas. Following a merger of ARDE and
FRS, both the FDN and ARDE/FRS relied on the U.S. Government for military and
monetary aid. Both suffered significantly from the cessation by Congress of
official U.S. aid between 1984 and 1986. During this time, these groups
appealed to other governments and private sources for funds to continue their
political and military efforts against the Sandinistas.

Although the Sandinista military was larger and better equipped, the FDN
and ARDE posed a serious threat to the Sandinista Government because of the
economic damage they caused to the Nicaraguan infrastructure. The FDN emerged
by 1987 as an effective force, and it actually controlled areas of northern
Nicaragua for a time.

In 1985, the United Nicaraguan Opposition (UNO) was formed to represent a
coalition of Northern and Southern Front Contra groups. However, UNO was
fraught with personality and ideological conflicts and made little progress in
developing a political program that enhanced the Contra's appeal. As a result,
UNO dissolved in early 1987 and was replaced by the Nicaraguan Resistance (RN)
in May 1987. The RN expanded the resistance assembly, incorporated previously
unrepresented blocs to broaden its appeal, and directed military operations
along the Northern and Southern Fronts.

In March 1988, both the Contras and Sandinistas, exhausted by the
conflict and encouraged by the United States and Central American governments,
signed a cease fire agreement. A series of agreements reached at Tesoro Beach,
El Salvador in February 1989 and Tela, Honduras in August 1989 defined the
framework that ended the conflict. The Contras were permitted to return to
Nicaragua and compete in open elections monitored by international observers.
On February 25, 1990, Violetta Chamorro, leader of the National Opposition Union
political alliance, defeated Daniel Ortega in the Nicaraguan presidential
election. On April 25, 1990 she took office, and the remaining Contra forces
began demobilization.

As the Sandinistas assumed control of the Nicaraguan Government (GRN),
suppressing political opposition and deferring elections, many early supporters
broke with the regime and left Nicaragua. Exiled mostly in Costa Rica, Honduras
and the United States, many formed groups seeking the overthrow of the
Sandinista Government. By 1981, groups of resistance fighters in Honduras, in
particular, had sought military assistance from the Honduran Government.

In 1981, DCI William Casey created the Central America Task Force (CATF)
at CIA. A Presidential Finding, signed by President Reagan in December 1981,
authorized Agency covert and paramilitary operations, facilitated through
friendly governments, against Cuban and Sandinista targets involved in arms
trafficking to insurgents in Central America. The Agency was initially
allocated $19 million to support and conduct political and paramilitary
operations in Nicaragua and elsewhere in Central America. Substantial numbers
of Agency officers and amounts of equipment began arriving in Honduras in
January 1982.

CIA personnel became involved in building and maintaining the Contra
forces. The Agency established a primary base of operations in Honduras. This
base supported the FDN, led by Enrique Bermudez and Adolfo Calero. Airfields
throughout the region were used to support Contra forces, and CIA personnel also
trained Contra fighters and served as advisors to the leadership.

In 1982, CIA also began to provide support to Creole and Indian groups
operating in Eastern Nicaragua and to the group of former Sandinistas under the
leadership of Eden Pastora that was based in Costa Rica. The Agency provided
support to Pastora and the allied Sandino Revolutionary Front/Democratic
Revolutionary Alliance groups (FRS/ARDE) from 1982 to 1984.

To ensure CIA's program did not go beyond arms interdiction, Congress
enacted an Intelligence Authorization Act in December 1982 that prohibited CIA
from supplying money, arms, training, or support to any individual or
organization seeking to overthrow the GRN or involved in provoking military
confrontations between Nicaragua and Honduras. Despite this restriction, in
1983 the pace of Contra operations increased along both the Northern and
Southern Fronts as newly trained fighters were deployed. With the quickening
pace of military action, the Agency struggled to keep up with Contra demands for
additional materiel.

In September 1983, the Agency was given greater latitude in its
relationship with the Contra forces by a new Presidential Finding that changed
the objective of Contra support from interdicting arms trafficking to bringing
the Sandinistas into peace negotiations. Congress, however, capped CIA spending
on the Contra effort in December 1983 at $24 million. After CIA mining of
Nicaraguan seaports became public knowledge, Congress denied a supplemental
request by CIA for $21 million.

By August 1984, the funding allotted for CIA support to the Contras had
been expended. Additional legislation was enacted in October 1984 that
precluded the Agency from providing paramilitary assistance to the Contra forces
over the next two years. During this period, the combat effectiveness of the
Contra forces declined.

In the absence of U.S. support, Contra organizations successfully
appealed to other governments and private sources for funds to continue their
war effort. Under National Security Council (NSC) official Oliver North's
direction, a network of companies and facilities was established in an effort to
supply the Contras. The level of support, however, did not meet the overall
needs of the Contras, and the Reagan Administration sought from Congress a
resumption of direct aid to be managed by CIA.

In October 1986, after considerable debate in Congress, the Agency was
authorized to provide paramilitary support to the resistance forces and $100
million was allocated to this purpose for Fiscal Year 1987, beginning in October
1986. The legislation that authorized this assistance contained a provision
that barred aid to any group whose members were found to have engaged in "gross
violations of internationally recognized human rights . . . or drug smuggling,
or significant misuse of public or private funds." By January 1987, CIA
was providing large quantities of supplies and new weaponry. Extensive training
was also provided to Contra fighters. The peak of military activity for the
Contras came in 1987 when 10,000 to 12,000 personnel were infiltrated into
Nicaragua to conduct guerrilla operations.

In November 1986, U.S. Attorney General Edwin Meese announced that
proceeds from the sale of arms to Iran had been "diverted" to the
Contras at a time when U.S. military aid to the Contras was prohibited.
Congressional support for the Contras waned dramatically as a result of
investigations into the Iran-Contra affair in 1987. No additional funding for
paramilitary support was appropriated by Congress after the expiration of the
$100 million program in 1987. By December 1988, only humanitarian aid was being
provided by the United States to Contra forces, although the Agency was still
permitted to share intelligence with the Contras. As the Agency withdrew, the
U.S. Agency for International Development took over responsibility for
administration of the humanitarian aid program. Lacking continued access to
military supplies, Contra forces began returning to their base camps outside
Nicaragua, effectively ending offensive military operations.

Building on a March 1988 cease fire agreement, the incoming Bush
Administration sought to complete a negotiated settlement to end the fighting.
Both the Contras and Sandinistas, exhausted by the war, supported a series of
agreements in February 1989 and August 1989 that defined the framework to end
the conflict.

1979

February -- U.S. Government suspends all new economic and military aid to Nicaragua.

July -- Somoza flees. Provisional Government of National Reconstruction (GRN) formed. Sandinistas turn government leftward.

1980

September -- Sandinistas suspend elections, take control of media.

1981

March -- DCI Casey establishes Central America Task Force.

August -- Opposition groups form on northern and southern borders of Nicaragua.

December --

Presidential Finding authorizes CIA to support and conduct political and paramilitary operations in Nicaragua, elsewhere in Central America.

Congress votes $19 million Contra military assistance.

1982

September -- Contra combat action begins.

December -- Boland Amendment, enacted as part of the Defense Appropriations Act of 1983, prohibits CIA and Department of Defense (DoD) from spending money to support activities designed to overthrow the Sandinista Government.

1986

April -- Senate Subcommittee on Terrorism, Narcotics and International Operations (Kerry Committee) opens an investigation into alleged illegal gun running and narcotics trafficking associated with the Contra War.

June -- Miami Herald reports NSC violation ofBoland restrictions.

October --

Legislation provides $100 million in FY87 for renewed military and nonmilitary assistance to the Contras; contains provision barring aid to any group whose members are found to have engaged in drug trafficking; clears way for restoration of CIA involvement in Contra War.

C-123 cargo plane shot down over Nicaragua. Eugene Hasenfus captured.

December -- Independent Counsel (Walsh) named to investigate Iran-Contra affair.

1990

Movement of Cocaine through Central America. Throughout the
1980s and thus far in the 1990s, South American traffickers have used the
Central American isthmus as an important secondary route for cocaine and
marijuana transshipment operations, for importing drug refining chemicals and
for laundering large sums of narcotics revenues. Traditional maritime drug
smuggling routes throughout the Caribbean (the Yucatan, Windward and Mona
Passages) continued to be important trafficking routes to the United States
throughout the period. The Central American countries became more important
staging areas and transshipment points for South American narcotics during the
1980s as Mexican traffickers began to handle a larger share of cocaine
trafficking.

Central America and some Caribbean islands offer favorable locations for
drug trafficking. Their geographic proximity to major narcotics producing
countries in South America and to the United States make this area a natural
route for transporting illicit drugs northward. The thousands of remote
islands, unpatrolled waterways, extensive coastlines, clandestine airstrips, and
generally unguarded borders all facilitate drug trafficking. By the early 1980s
almost all countries in the area were serving as transshipment, staging, or
refueling points for boats and planes that carried cocaine to the United States.
By refueling their aircraft and boats in Central America and the Caribbean, the
traffickers greatly enhanced their chances of entering the United States
undetected. They could bypass such choke points as the Yucatan Channel and
Windward and Mona Passages and avoid Florida, where interdiction efforts were
beginning to be concentrated. During the late 1970s and early 1980s, cocaine
transiting Central America went to such diverse areas as Louisiana, Texas,
Colorado, Georgia, West Virginia, and New York.

In the 1980s, large cocaine trafficking organizations frequently
controlled fleets of small aircraft--many with sophisticated communications gear
and reconfigured with extra fuel tanks--that were used to carry drugs, people
and money between Latin America and the United States. These operations were
supported by a network of airfields, some of which were fairly large with
concrete runways, others of which were small dirt strips. The organizations
also had sizable numbers of trucks, small and large boats, helicopters, and
other forms of transport needed to move the drugs from remote growing areas to
clandestine processing sites and eventually to the U.S. market. By the end of
the decade, major trafficking organizations were showing a greater preference
for shipping larger loads via maritime routes and commercial conveyances and
containers as well as utilization of various free trade zones.

There are no authoritative estimates of the quantities of cocaine moved
through Central America in the 1980s. However, the major routes were known to
U.S. authorities and air and maritime transport were thought to be the primary
trafficking modes. By 1996, however, it was estimated that the commercial and
noncommercial maritime smugglers were shipping three times more cocaine than was
being moved by air.

While comprehensive cocaine movement figures are not available for the
mid-1980s, a reasonable conclusion is that they would be roughly similar in
relative magnitude to what was measured in the late 1990s. Noncommercial
vessels--usually "go-fast" boats--most likely provide the primary
means by which traffickers currently move cocaine into the Central
America-Caribbean transit zone. Roughly 60 percent of the total amount of
cocaine that is annually destined for the United States traverses the Eastern
Pacific and the Western Caribbean up the Central America-Mexico corridor
including about 10 percent that moves directly through Central America.
Another 10 percent passes through the Caribbean directly to the United States.
The remaining 30 percent enters the Caribbean and is then transshipped to the
United States.

Production and Export of Cocaine from South America. Within
South America, cocaine is moved over a number of major routes. From the
Peruvian growing areas, most cocaine base is moved by air, rivers and roads to
Peru-Bolivia-Brazil border areas and is then flown to Colombia for processing
into finished powder cocaine. Cocaine base from Bolivian growing areas is
increasingly being processed into finished powder within Bolivia. Some Peruvian
cocaine base is also moved by land to the Pan American Highway and transported
from Peru through Ecuador to Colombia.

Cocaine is a stimulant drug produced from the leaf of the coca bush,
which grows almost exclusively in South America. Approximately 85 percent of
the world's coca supply is grown in Peru and Bolivia, while the remaining 15
percent is grown in such areas as the rain forests of Colombia. Since the late
1960s, Colombia has dominated the processing and trafficking of cocaine
manufactured from coca grown in Bolivia and Peru. However, until the late
1980s, Colombia produced relatively little coca.

Extraction of cocaine is a process that usually requires three separate
steps. After the coca leaf is harvested, it is first processed into coca paste
and then turned into cocaine base. Coca paste and cocaine base are produced, in
most cases, to ease transport by reducing the size of the product. In recent
years, the paste manufacture stage is being bypassed, with coca being processed
directly into cocaine base. Cocaine base is then processed into finished powder
cocaine.

Crack cocaine that is consumed in the United States is generally made
from cocaine that has been imported into the United States. Crack cocaine is a
form of smokeable, or "freebase," cocaine that was developed in the
mid-1970s. Crack appeared in the early 1980s as an alternative to chewing,
drinking, injecting, or inhaling the drug. In smokeable form, the drug is
delivered to the brain more quickly and has a more intense effect. Crack is
made by dissolving the drug in water, adding a material such as baking soda, and
heating the mixture until "rocks" of crack are formed. This is a very
simple process that can be performed near the final point of sale. Since crack
is sold in smaller units than cocaine that is inhaled, the cost per dose is
lower to the user. The dealer pays the same amount to a wholesaler for cocaine,
alters it into the crack form, and makes up to four times higher profit than
from the powdered form of the drug.

With the intersection of political, economic, geographic, and military
factors in Central America affecting the Contra movement, allegations of arms
smuggling, profiteering, corruption, drug trafficking, etc., developed early and
were propagated during the period under review. Several previous investigations
have explored allegations that the Contra effort was funded with the proceeds of
drug trafficking. The relevant findings of these and other relevant
investigations are summarized below.

Iran-Contra Investigations. Between August 1985 and October
1986, the U.S. Government facilitated the sale of missiles and spare parts to
the Government of Iran. In November 1986, the existence of these sales became
publicly known. Moreover, there appeared to be a link between these sales and
efforts to obtain the release of American hostages held in Lebanon by
terrorists. On November 21, 1986, President Reagan instructed Attorney General
Meese to conduct an inquiry for the purpose of compiling a "complete
factual record" with respect to the Iran arms sale.

On November 25, 1986, the Attorney General publicly announced that his
inquiry had produced evidence that some of the funds obtained from the Iran arms
sales had been diverted to the Contras to support their war against the
Sandinista Government of Nicaragua. This had occurred at a time when
restrictions on U.S. Government assistance to the Contras had been imposed by
Congress under legislation commonly referred to as the Boland Amendments.

As a result of these revelations, several official investigations were
initiated. These included inquiries by the President's Special Review Board
(the "Tower Commission"),te Select Committee on
Intelligence, the House Select Committee to Investigate Covert Arms Transactions
with Iran, the Senate Select Committee on Secret Military Assistance to Iran and
the Nicaraguan Opposition , and an Independent Counsel appointed pursuant to the
Ethics in Government Act--the Independent Counsel for Iran/Contra Matters,
Lawrence Walsh. In addition to these inquiries, CIA's Inspector General
conducted a series of investigations focusing on the role of the Agency and the
Agency's employees in the sale of arms to Iran and the provision of assistance
to the Contras. On September 1, 1987, DCI William Webster appointed a
Special Counsel to review the results of these inquiries and make
recommendations for administrative action.

CIA Investigations. The CIA OIG conducted four examinations of
Iran-Contra activities, but none included the issue of drug trafficking
allegations involving the Contras. A July 1987 review focused on Agency
compliance with congressional restrictions regarding support to the Contras from
1984-87. A second investigation reviewed the Agency's role in the sale of
missiles to Iran and the diversion of profits from those sales to the Contras.
A third review was a "Special Investigation into Certain Activities of the
Chief of Station San Jose." In addition to these CIA/IG reviews, DCI
Webster's Special Counsel issued a "Report of the Special Counsel to the
Director of Central Intelligence Concerning the CIA's Role in the Iran-Contra
Matter" on December 15, 1987.

Report of the Joint Congressional Committees Investigating the
Iran-Contra Affair. A November 1987 "Report of the
Congressional Committees Investigating the Iran-Contra Affair" was issued
jointly by the House Select Committee to Investigate Covert Arms Transactions
with Iran and the Senate Select Committee on Secret Military Assistance to Iran
and the Nicaraguan Opposition. In the course of this investigation, the
Committees obtained and reviewed a large volume of documents from CIA and other
sources and conducted interviews with CIA personnel. An appendix to this report
contained a July 23, 1987 memorandum, titled "Allegations Re: Contra
Involvement with Drug Smuggling" that was written by an investigator for
the House Committee. It discussed allegations ofContra involvement in
drug smuggling and stated:

Our investigation has not developed any corroboration of media-exploited
allegations that U.S. government-condoned drug trafficking by Contra leaders or
Contra organizations or that Contra leaders or organizations did in fact take
part in such activity.

The July 1987 memorandum noted that, during the investigation,

. . . hundreds of individuals, including U.S. Government employees,
Contra leaders, representative of officials of foreign governments, U.S. and
foreign law enforcement officials, military personnel, private pilots and crews
involved in actual operations were questioned and their files and records
examined.

Nonetheless, the appendix reported:

There was no information developed indicating any U.S. government agency
or organization condoned drug trafficking by the Contras or anyone else.

The Joint Congressional Committee report also contained another appendix
titled, "Organization and Conduct of the Committees' Investigation."
Among other things, this appendix discussed the investigation of the
Contra's sources of funds and stated:

Contra leaders have been interviewed and their bank records examined. .
. . Examination of Contra financial records, private enterprise business records
and income tax returns of several individuals failed to locate any indication of
drug trafficking.

An investigator involved in this examination, a retired FBI Special Agent,
reiterates this point and says that "the [Certified Public Accountants] who
were charged with auditing the Contra bank accounts found no evidence of
influxes of cash attributed to drugs." He says that bank
accounts examined included Contra organizations bank accounts in the Bank of
Commerce and Credit International and personal bank accounts. According to the
investigator, the sources of all the money in these accounts were accounted for
and much came from third country contributors.

The Joint Congressional Committee report also explained in detail the
procedures used to track the Contra funds in another appendix.

Following the "money trail"--the sources, movements, and
locations of funds involved in the investigation--necessitated the establishment
of separate specialized data bases. Two closely related files were created.
The first identified all relevant bank accounts; the second contained the
detailed transactions. Data were first entered into the bank account file to be
used to verify transactions. Each account was verified to flow from a known
account to another known account. After the bank account file was prepared,
specific transactions were entered into the second file. All monetary amounts
were typed twice; the program monitored the entry to ensure that the two entries
were identical. The accounting firm of Price Waterhouse provided professional
accounting services to the House Committee, and the General Accounting Office
provided similar services to the Senate Committee.

Report of the Senate Subcommittee on Terrorism, Narcotics and
International Operations. The principal investigation that focused on
allegations that drug money was being used to fund Contra operations was
conducted by the Senate Subcommittee on Terrorism, Narcotics and International
Operations of the Committee on Foreign Relations. In April 1986, the
Subcommittee opened an investigation into allegations of illegal gunrunning and
narcotics trafficking associated with the Contra war. As the investigation
proceeded, according to the Subcommittee's report, information began to develop
concerning the operations of international narcotics traffickers, particularly
the Colombian cocaine cartels. As a result, the Contra-related allegations
became part of a broader investigation into the relationship between U.S.
foreign policy, narcotics trafficking and law enforcement.

The Subcommittee's report, "Drugs, Law Enforcement and Foreign
Policy," published in December 1988, concluded that the drug traffickers
used the Contra war and their ties to the Contras as a cover for their criminal
enterprises in Honduras and Costa Rica. While the assistance provided by the
drug traffickers was "a matter of survival [for the Contras], for the
traffickers it was just another business deal to promote and protect their own
operations."

The Subcommittee report included findings indicating:

Individuals who provided support for the Contras were involved in drug
trafficking, the supply network of the Contras was used by drug trafficking
organizations, and elements of the Contras knowingly received financial and
material assistance from drug traffickers. In each case, one or another U.S.
Government agency had information regarding these matters either while they were
occurring, or immediately thereafter;

Involvement in narcotics trafficking by individuals associated with the
Contra movement;

Participation of narcotics traffickers in Contra supply operations through
business relationships with Contra organizations;

Provision of voluntary assistance to the Contras by narcotics traffickers,
including cash, weapons, planes, pilots, air supply services, and other
materials; and

Payments to drug traffickers by the U.S. Department of State of funds
authorized by the Congress for humanitarian assistance to the Contras, in some
cases after the traffickers had been indicted by federal law enforcement
agencies on drug charges, in others while the traffickers were under
investigation by those agencies.

The Subcommittee did not find evidence that the Contra leadership "participated
directly in narcotics smuggling in support of their war, although the largest
Contra organization, the FDN, did move Contra funds through a narcotics
trafficking enterprise and money laundering operation." The Subcommittee
concluded that there was substantial evidence of drug smuggling on the part of
individual Contras, pilots who flew supplies, mercenaries who worked for the
Contras, and Contra supporters throughout the region.

The Subcommittee also found that U.S. intelligence reporting regarding
narcotics issues had been "marginal and woefully inadequate." The
Subcommittee noted that:

. . . despite widespread trafficking through the war zones of northern
Costa Rica, [the Subcommittee was] unable to find a single case which was made
on the basis of a tip or report by an official of a U.S. intelligence agency.
This despite an executive order requiring intelligence agencies to report
trafficking to law enforcement officials and despite direct testimony that
trafficking on the Southern Front was reported to CIA officials.

Further, the Subcommittee concluded that U.S. officials involved in
assisting the Contras "knew that drug smugglers were exploiting the
clandestine infrastructure established to support the war and that Contras were
receiving assistance derived from drug trafficking," yet did not report
these individuals to the appropriate law enforcement agencies. Instead, the
Subcommittee found that "some [of these] officials may have turned a blind
eye to these activities." Moreover, the Subcommittee believed there were "serious
questions as to whether or not U.S. officials involved in Central America failed
to address the drug issue for fear of jeopardizing the war effort against
Nicaragua."

The Subcommittee made only one legislative recommendation in its report
that directly pertained to the Intelligence Community: "No U.S.
intelligence agency should be permitted to make any payments to any person
convicted of narcotics related offenses, except as authorized in writing by the
Attorney General in connection with the investigation or prosecution of criminal
activity." The Subcommittee also concluded in a section on "National
Security Issues" that better cooperation between law enforcement and
intelligence agencies should be established so that "a useful intelligence
product can assist law enforcement efforts in the war on drugs," and that
individuals who misrepresent themselves as working for CIA or other national
security agencies should be promptly prosecuted to the full extent of the law.
The Subcommittee also found that some individuals involved in "supporting
narcotics trafficking did so because they were told that their actions were
either on behalf of, or sanctioned by, the U.S. Government."

Final Report of the Independent Counsel for Iran/Contra Matters.
"The Final Report of the Independent Counsel for Iran/Contra Matters"
was issued on August 4, 1993. It did not state any conclusions regarding the
Contras and drug trafficking, but did indicate that the sources of Contra funds
had been closely examined. Among other things, the investigation had:

. . . obtained the Swiss financial records of the Enterprise,uments
from other foreign countries, extensive domestic financial records, and also the
immunized testimony of Enterprise and [National Endowment for the Preservation
of Liberty] officers and employees. Willard I. Zucker, the Enterprise's Swiss
financial manager, was given immunity to illuminate the financial structure of
the Iran and Contra operations.

One of the lawyers who was appointed to the OIC says that narcotics
trafficking allegations comprised "only about one percent" of his and
other investigators' interest. The issue of drug trafficking, he states, was
reviewed because the OIC hoped it might find issues to use as "leverage"
against targets of the investigation. For the most part, he says, any drug
trafficking activity would have been "stumbled on" in the course of
the investigation of other issues, especially money laundering. This former OIC
staff member recalls that no funds with unexplained sources were found in the
OIC investigation. However, he adds that the focus of the OIC's investigation
was the expenditure, rather than the source, of funds.

Walsh Memoirs. Independent Counsel Walsh published his memoirs
of the Iran-Contra investigation--Firewall: The Iran-Contra Conspiracy and
Cover-up--in 1997. The book focuses on how Walsh and his staff developed
prosecutions for conspiracy to defraud the U.S. Government, spending U.S.
Government funds without proper appropriations, theft of U.S. Government
property, mail fraud, obstruction of justice, and obstruction of congressional
investigations through giving or preparing false testimony or destroying
records. The book makes no reference to allegations of drug trafficking, the
1987 Report of the Joint Congressional Committee or the December 1988 final
report of the Senate Subcommittee on Terrorism, Narcotics, and International
Operations.

Los Angeles County Sheriff's Department Investigation. On
October 3, 1996, Los Angeles County Sheriff Sherman Block ordered an inquiry
into the allegations in the San Jose Mercury News articles.
The inquiry was meant to determine in part what the Los Angeles County Sheriff's
Department (LASD) knew about:

. . . alleged CIA/Contra (FDN) involvement in cocaine sales in the south
central area of Los Angeles . . . . and whether or not any such knowledge or
belief caused members of the Sheriff's Department to ignore or not properly
investigate drug cases.

Much of the LASD investigation centered on allegations made in a postscript
article to the newspaper's "Dark Alliance" series. This article,
titled, "Affidavit: Cops Knew of Drug Ring," was based in large part
on information from a 1986 affidavit of a former Los Angeles County Sheriff's
narcotics detective and a defense lawyer's motion in a 1990 corruption case
against a number of former Sheriff's Department members.

The December 1996 LASD summary of the 3,600-page report that resulted
from the investigation states that Ronald Lister and Danilo Blandon were Contra
sympathizers, but that:

. . . information obtained during this inquiry does not support the
assertion the FDN obtained money and arms through the sales of cocaine. It does
appear some supporters of the "Southern Front" of the Contra army
(ARDE) were possibly involved in the sales of cocaine.

According to the LASD summary, the 1990 motion filed by a defense
lawyer on behalf of LASD deputies who had been accused of corruption contained
allegations of improper procedures during and after the 1986 execution of search
warrants in the LASD's investigation of drug trafficking by Blandon. These
included allegations regarding improper confiscation of evidence by agents of
the federal government. Some LASD officers who had been involved in
the 1986 searches indicated that they believed Lister had mentioned a CIA
affiliation or that he had phoned a CIA contact, Mr. Weekly, during the search
of his residence.

The 1996 LASD summary of its investigation concluded that, after the
warrant was served on Lister, the FBI attempted to confirm the alleged CIA
relationships of Lister and several other individuals. The LASD
summary indicated that CIA had responded in a teletype to the FBI with
background information regarding Norwin Meneses and Orlando Murillo, but
indicated that CIA had no information regarding any of the other individuals.

The LASD summary of its investigation also addressed the allegations of
confiscation of evidence by federal agents:

. . . a full review of all the reports, evidence entries, and evidence
disposition forms was conducted and [it was] determined that for each item
seized in the searches there is a consistent "paper trail."

The LASD summary also stated, " . . . all evidence was seized,
documented, and disposed of per Department policy. No property was taken by any
'federal agents.'" The LASD summary concluded that "investigators
have determined this allegation was apparently spread through secondhand rumor
and innuendo among some members of the narcotics team personnel."

Los Angeles Police Department Inspector General Report.
An October 24, 1996 letter to the Los Angeles City Council updated the status
of an inquiry into the San Jose Mercury News allegations by Los Angeles
Police Department (LAPD) Inspector General Katherine Mader. According to the
letter, the LAPD IG inquiry had not substantiated any allegations that the LAPD
was aware of any CIA involvement in narcotics trafficking.

QUESTIONS PRESENTED

Volume I of this Report addresses the following questions relating
directly to the allegations contained in the San Jose Mercury News
series and in claims that CIA interfered with law enforcement investigations
into narcotics trafficking in California:

Did CIA have any relationship or dealings with Ross, Blandon or Meneses?

Was the drug trafficking of Ross, Blandon or Meneses linked to CIA or
Contra activities?

Did CIA intervene or otherwise play a role in any investigative or
judicial processes involving the drug trafficking activities of Ross, Blandon or
Meneses?

Did any of the individuals who were arrested in "The Frogman Case"
have any relationship with CIA? Was their drug trafficking linked to the
Contras?

Were those arrested connected with CIA?

Were those arrested connected with the Contras?

Was CIA involved in the investigation of The Frogman Case?

To what extent, and why, did CIA become involved in the prosecution of The
Frogman Case? What was the effect of CIA involvement in the prosecution?

To what extent did CIA respond to Congressional inquiries regarding The
Frogman Case?

Volume II of this Report will review broader issues of Agency knowledge
and handling of drug trafficking allegations regarding Contra personnel and
organizations and others involved in supporting the Contras on behalf of CIA.